Crazy day at the Market! You want some?

One of the most interesting and fascinating part of investment to me is standing at the sidelines to observe just how irrational investors and market as a whole can be.

Sometimes, at the lure of fast gains, they can get sucked into a trading frenzy, only to have the whole action dying down just as fast. I never fail to be amazed at such cases of mad crowd behavior.

One instance that reminds me of a crazy day in the market, will have to be the first day China Aviation Oil (CAO) re-opened for trading after a long suspension. For those unfamiliar with the Singapore market, CAO is a Singapore Stock Exchange (SGX) listed company based in Beijing, that supplies jet fuel.

It got it’s ass busted for illegal insider trading and crimes linking to risky oil derivatives speculation which resulted in massive losses of US500 million! To cut the long story short, the director, once hailed as a high flyer in the industry, was sent packing to jail, while the company went through a long painful restructuring process, which also saw the two knights in shining armour, Temasek Holdings (the investment arm of the Singapore government) and British Petroleum (BP) coming to it’s rescue.

Mr Market claimed yet another victim!

Image Credit: www.danablankenhorn.com

Today I read a report in the newspaper that got me shaking my head, half in pity and half in weary resignation.

It seems that there are always such cases happening!

The report was about how a student lost $700 000 trading in shares during the recent market slump! In the process, he wiped out his dad’s life savings, lost his girlfriend, and possibly also his family’s house!

Imagine $700,000! That’s not very far off one million! More money that most of us can ever dream of!

I find such cases really sad. Tragic even. Seriously, such cases can be avoided, and I hope this story serves as a wake up call to investors/traders who are living dangerously on the edge.

Some important lessons we can learn here

1. Firstly, he wouldn’t have been in such a predicament had he invested money which he can afford to lose. That is to say, even in the worse case scenario of 100% loss (assuming he doesn’t leverage), there will be minimal disruption and adverse impact to his financial health. He will still be able to carry on the normal lifestyle that he is leading. Alas, this is not the case here.